Markets Pull Back On Consumer Spending Concerns

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Directly following the release of this morning’s Producer Price Index (PPI), Retail Sales and Weekly Jobless Claims, all four major indices climbed higher, even though it was pretty clear we weren’t going to see any interest rate cuts for at least 13 weeks (the June 11-12 FOMC meeting), but within minutes of the opening bell, they had all dropped into negative territory. Up from session lows a half-hour before the close, the Dow finished -0.35%, the S&P 500 -0.29%, the Nasdaq -0.30% and the small-cap Russell 2000 a deep -2.31%.

What we’ve been seeing, going back to last week’s Beige Book which cited heightened price sensitivity for consumers overall, is that high prices are cooling off customers’ appetites. We see this again in Retail Sales for February, which over the first two month of the year are -0.5% from expectations. We also saw from McDonald’s (MCD - Free Report) earlier that there is some concern about a softer consumer. And if the world’s #1 quick-service restaurant is saying this, chances are the consumer appetite for retail goods has indeed come down.

This also looks like something of a pullback that all bull markets see from time to time; these four market indices are all up year-to-date, and from October lows are extraordinarily higher: the Dow +18.8%, the Russell +21.3%, the S&P +23.2% and the Nasdaq a truly terrific +25.4%. Selling off a third of a percentage (aside from the Russell, which was down big today) does not exactly constitute an inflection point, and even if it develops into that through Friday, keep in mind a cooling consumer will ultimately be what does help the Fed to decide to cut interest rates again.

Adobe (ADBE - Free Report) shares are down -10% in late trading, following the company’s fiscal Q1 earnings report which beat expectations on top and bottom lines. The image editing software giant posted a 10-cent beat on earnings to $4.48 per share on +$50 million on its top line to $5.18 billion, but coming up short on its fundamental metric of annual returning revenue growth, along with next-quarter revenue guidance lower than previously expected, have now pushed shares into the red, year to date.

Ulta Beauty (ULTAFree Report) shares are also selling off by -5% after solid beats on both top and bottom lines — earnings of $8.08 per share versus expectations on $3.55 billion in sales easily surpassed the $7.49 per share and $3.52 billion expected, respectively — and even pretty decent upward guidance for full year earnings and revenues. This may well be a simple “sell the news, take profits” move, as the stock had been up +16% year to date.

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